Fitch: D-Cap Assessment Unchanged for 4 French FCT programmes
The unchanged D-Cap of 8 notches remains driven by the pass-through amortisation of the notes that would be triggered by an event of default of the borrowing bank (Banque Federative du Credit Mutuel - BFCM or Credit Agricole SA - CA SA, where applicable) and by the presence of sufficient protection against interest rate interruption risk, leading to a minimal discontinuity risk assessment.
Asset segregation is assessed as 'low risk', which reflects the robustness of the French securitisation legal framework and the bankruptcy remoteness of FCTs. It is aligned with our assessment of French Societe de Financement de l'Habitat (SFH), which uses the same collateral security mechanism governed by the transposition in French law of the European Directive on Financial Collateral Arrangements (2002/47/EC).
The liquidity gap and systemic risk is assessed as 'minimal', reflecting the pass-through amortisation of the notes and the presence of different reserves deemed to cover three months of interest payments on the notes plus a buffer to cover the programme's expenses.
Systemic alternative management is assessed as 'very low' risk, due to the presence of an external management company, which would facilitate the transition to a new servicer if necessary. This is also driven by the absence of a need to sell cover assets after enforcement of the cover pool based on the pass-through amortisation of the notes.
Cover pool-specific alternative management is assessed as 'moderate risk' for CM-CIC HL FCT, CMNE HL FCT and Zephyr HL FCT and 'moderate high risk' for FCT Evergreen. This reflects IT systems of the borrowing banks that are capable of managing cover pools and data delivery, despite the presence of a large number of collateral providers.
Privileged derivatives within the programmes are assessed as 'moderate risk', reflecting the presence of large interest rate swaps on the asset side of the FCTs contracted with internal counterparties. In Fitch's view, these swaps are material for the continuity of payments as the notes pay a floating interest rate while the majority of the assets are fixed-rate.
Fitch's D-Cap analysis captures the risk of payment interruption on the covered bonds upon the transition from the issuer to the cover pool as the source of covered bond payments and is expressed as a maximum number of notches that can be achieved above the Issuer Default Rating (IDR) as adjusted by the IDR uplift to the tested covered bond rating on a probability of default basis.